Curbs on how much people can borrow may be needed to puncture a dangerous house price bubble, leading economists warn today.

A
cap – suggested as a return to the historic level of about three times a
homebuyer’s income – would tackle rampant house price inflation,
especially in areas where young people and families are either being
priced out or forced to take on potentially crippling mortgages.

The
need for curbs on lending has been raised by City economists on the
respected EY Item Club, who revealed that some home loans are back to
the dangerous levels seen before the financial crash.

Curbs on how much people can borrow may be needed to puncture a dangerous house price bubble, leading economists warn today

Then, banks such as the failed Northern Rock approved mortgages equivalent to almost six times a couple’s income.

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But
with interest rates currently at record low levels, anyone borrowing
huge sums now will face soaring repayments if the rates start rising –
which has been predicted within the year.

A cap ¿ suggested as a return to the historic level of about three times a homebuyer¿s income ¿ would tackle rampant house price inflation, especially in areas where young people and families are either being priced out or forced to take on potentially crippling mortgages

Andrew Goodwin, economic
advisor to the EY Item Club, said the Bank of England’s Financial Policy
Committee, which is responsible for ensuring the property market does
not overheat, may need to step in.

He added: ‘The FPC should be looking
to limit income multiples.’

London house prices leapt by 11.2 per
cent in 2013, and 4.4 per cent across the rest of England and Wales.

The
EY Item Club forecasts UK prices will rise by 8.4 per cent this year
and 7.3 per cent in 2015.